Tuesday, 26 March 2013

Mainstream media in 2008 were replete with diagnoses of the sickness of the US economy. Central bankers, politicians and their economic advisors sought to explain the economy’s swoon in medical terms. The economic patient was described as having a heart attack, a seizure, a collapse, a loss of animal spirits, loss of confidence. Our body economic was described as being in shock, needing liquidity injections, going to the emergency room, on life support, on the operating table, responding to the medicine and, hopefully, in the recovery room.
Let’s look at all this body imagery conjured up by the economic experts and see if there may be some more realistic medical appraisals. Since it seems self-evident that our economy needs restructuring, let’s look at how deformed and misshapen it became over the past quarter century. We know that our economic body suffers from cancerous growth of its financial sector which metastasized to over 20% of its GDP. A normally efficient financial sector, likened to the body’s blood supply and circulatory system, need be no larger than 10% of GDP.
So, let’s flesh out the diagnosis in broader medical terms: The body economic suffers from:
• An enlarged heart and circulatory system. Unlike the earlier medical remedies of blood-letting, today’s economic doctors seem intent on increasing the body’s blood supply, creating hematomas in the banking sector. Injecting liquidity has led to edemas with pools and clotting in various organs and sectors. Bypass surgery may be the answer to downsizing bloated, “too big to fail” Wall Street firms, banks and “insurance” companies while re-directing the transfusions to homeowners, Main Street businesses, students, state budgets, extending unemployment benefits, food stamps, schools, healthcare, human services and charitable foundations.
• Immune system malfunctions where the regulatory functions of their watchdog cells, liver, kidneys and other vital organs were compromised, causing growth of strange, toxic organisms such as CDOs, SIVs, CDSs and a menagerie of unrecognized foreign invaders. Here immunity-boosting antibodies, whistleblowers, investigative journalists and bloggers are the remedies needed. Other prescriptions must include flushing out toxic waste “assets” from banks, hedge funds and insurance companies by simply writing them off and permitting reckless companies to fail and go bankrupt.
• Skeletal and muscular atrophy as the productive sectors were dismantled and backbone manufacturing, infrastructure, plants, equipment and goods production went to cheaper labor in other, less-regulated countries. The economy’s spine suffered deterioration as levees, sewage treatment, water mains, bridges, dams, roads and railroads fell into disrepair. Remedies are obvious in bringing new blood transfusions into circulation to oxygenate and restore tissues, bones and sinews.
• Overweight and accumulation of fatty deposits in tissues due to over-investment in automobiles for transportation while starving mass transit and hampering cycling, walking and other fitness-maintaining parks in cities and infrastructure. Remedies are at hand for stimulating urban revitalization, retrofitting city infrastructure with pedestrian malls, mass transit and reversing sprawl.
• Overgrown dysfunctional medical-industrial complex gobbling 16% of GDP and military-industrial complex, a back-breaking “charley horse” of $500 billion per year. Healing these conditions calls for shifting to preventive, universal, single-payer holistic healthcare and wellness programs while shifting weapons budgets to diplomacy, better information and intelligence services.
• Brain and nervous system atrophy due to mind-numbing mainstream media. Advertising induces impulse buying, low self-esteem and consumerist waste while obfuscating public understanding of the need to shift from fossil fuels to clean, green renewable energy and efficient resource use. Remedies include expansion of public broadcasting, ethical standards for advertising, publicly funded political campaigns, restoring the fairness doctrine, equal time provision of the FCC while rebuilding crumbling schools, revising outdated curricula and paying teachers adequately. Re-training programs will be needed for re-deploying the oversupply of economists, lawyers, MBAs, options traders, quants and financial engineers to perform useful tasks, including real engineering, retrofitting buildings, restoring parks and playgrounds, volunteering at food banks, well-baby clinics and teaching reading skills to our 20% of illiterates.
• Constipation and accumulation of toxic wastes in bodily organs, colon, liver and kidneys, leading to an inability to flush toxic assets from balance sheets by the appropriate write-downs and bankruptcies. Build up of pollution due to lack of regulatory oversight, enforcement and elimination of toxics. Prescriptions include restricting lobbying and political contributions, vigorous law enforcement and re-regulation of higher environmental, public health and safety standards. The downsizing of the financial sector must include breaking up oversized banks, banning credit default swaps, and other murky derivatives, reinstating the Glass-Steagall Act to separate banking from brokerage, investment banking and insurance while banning naked short selling, bringing back the uptick rule and the small tax on all transactions.
• Psychosomatic disorders including narcissism, feelings of entitlement, unwarranted fears, addiction to oil, over-use of patent medicines and an inability to reality-test or recognize new global conditions. Remedies include tough love from some of the other economies in the human family that lend us some $3 billion per day to sustain our over-consumption habit, including China, Japan and the OPEC nations. Another key prescription is a small tax on daily currency trading of over $2 trillion, 90% of which is speculation. This would stabilize currency turbulence and provide billions to meet the UN Millennium Goals of providing health and education to all members of the human family and reducing poverty. Tax avoidance and money-laundering can be more closely monitored and prosecuted while transfers offshore to financial brothels can be cauterized and shut down.
Can the US body economic be healed? Yes! Rejuvenation and reforms are on the agenda of the new Obama administration, as well as plans to perform re-constructive surgery on the economy, toward a new base on solar, wind, geothermal and more efficient infrastructure. As the rest of the world relies less on the US dollar, US consumers will kick many old addictions and producers will grow more sustainable local economies. Bloated industries will downsize while inefficient firms will go bust. The old dreams of Wall Street “masters of the universe” and old boys’ military adventures and empire can quietly fade away.

Monday, 25 March 2013

What’s not to like about Bitcoin, every libertarian’s favorite crypto-currency?
For starters, Bitcoins are as cyberpunk as William Gibson’s wildest dream: a form of monetary exchange invented in 2009 by a mysterious character who called himself “Satoshi Nakamoto” but then disappeared from view after unleashing his virtual currency upon the world. Bitcoins are undeniably cool: marvelously “mined” from the ore of computer processing power and electricity; more ready for prime time than any previous experiment in purely digital money. And Bitcoins, increasingly, are a success. At a Thursday afternoon all-time-high valuation of $72 per Bitcoin, there were around $700 million worth of Bitcoins in circulation. People are using Bitcoins to buy real goods and services, to hedge against European financial calamity, and to score drugs. That’s money.
Over the years, Bitcoin has experienced ups and downs; the currency has been targeted by hackers and thieves and botnets and been victim to more than one embarrassing software glitch. But it has persevered, and this week, one can fairly say that Bitcoin came of age. On Monday, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released its first “guidance” as to how “de-centralized virtual currencies” should fit into the larger regulatory regime under which currencies of all kinds are required to operate. The word “Bitcoin” is never mentioned in FinCEN’s release, but that’s just a technicality. Everyone in the Bitcoin community knew who the guidance was aimed at. Bitcoin is a big boy now. The State is paying attention.

But while some observers have applauded FinCEN’s guidance as acknowledgment that Bitcoin isn’t illegal or considered a “threat” by the government, not everyone is cheering the news. Because there’s a problem here. Bitcoin isn’t just an elegant way to create money using peer-to-peer networks and cryptography. Bitcoin is a currency with an ideology.From the beginning, Bitcoin was envisioned as a form of monetary exchange that didn’t need third-party financial institutions or central banks or even governments to validate it or back it up. Bitcoin is the fulfillment of a libertarian dream, a currency created out of the workings of the free market, unaffiliated with any state authority, respectful and protective of user privacy and anonymity, and designed to resist inflationary pressures. By its very nature, Bitcoin is made for people who don’t want other people to know what they are doing.
“Bitcoin,” says financial pundit Max Keiser, “is the currency of resistance.”
That’s all fine and dandy, but then here comes the government with its strong suggestion that any organization that facilitates the exchange of Bitcoins into other non-virtual currencies needs to register with the proper authorities and start keeping a lot of bureaucratic paperwork. How does that fit in with the idea of “resistance”?
Not very well, as we can learn from one Redditor who chastised his fellow Bitcoin fans for celebrating the legitimacy conferred upon Bitcoin by FinCEN’s guidance.

From this situation to total government tracking of money flows and zero possibility to escape their theft, it is but a small step. The tax farmers have co-opted all of you into even more total servitude. But you celebrate that. How servile.
Sigh. Slave-minded idiots, nearly all of you, naively happy because the eye of Sauron has finally locked its sight on you, celebrating defeat as if it was a victory, cheering like mad cows as your farmers line all of you up at the slaughterhouse. May you get the cages you foolishly cheered for.

Mr. Eye of Sauron might be a little overheated, but there’s a nugget of sense buried in his rage. There’s a contradiction at the heart of Bitcoin. The more popular Bitcoin gets, whether as a symbol of resistance or a perceived safe haven in financially troubled times, the more government attention it will inevitably draw, and the more inexorably it will be sucked into existing regulatory structures. Incomes denominated in Bitcoins will be taxed. Efforts at money laundering will be cracked down upon. It’s the price of success. Resistance is futile.

* * *

The Bitcoin moment is right now. Two weeks ago, at the very end of a SXSW presentation on 3-D gun printing, Defense Distributed founder Cody Wilson encouraged his audience to take a look at what was happening with Bitcoin. Just in the last two weeks, he said, Bitcoin had “exploded.”
And it’s true, over the last four weeks, Bitcoin has repeatedly broken its all time record in terms of how much a single Bitcoin can be exchanged for another currency. Some observers have attributed this to the growing number of vendors — including WordPress and Reddit — that are willing to take payments in Bitcoins. Others point to the financial distress in Cyprus: Bitcoins are the new gold — a hedge against inflation and government appropriation. Others see what’s happening as little more than a classic bubble in the making, and are scrambling to get out before it pops.
Whatever the explanation, Bitcoin’s profile has never been higher, and the overheated rhetoric is keeping pace.

Cody Wilson, who reportedly raised $17,000 in Bitcoins to help fund his organization’s purchase of a high-end 3-D printer, was clearly delighted at Bitcoin’s surge when he spoke at SXSW. For him, there’s an obvious synergy between the virtual, non-government affiliated currency and his own plans to undermine the power of the state everywhere and enact practical anarchy in the world by distributing the power to 3-D print your own assault weapons. In one of his most recent over-the-top promotional videos, Wilson declares that to realize his organization’s goals, “we’ll need the Bitcoin. These days holding dollars is a political choice.” Elsewhere, he has described his vision as “a future of federal communities and slowly disintegrating and reactionary states. It is imperative to begin using cryptocurrencies and private commerce to starve these beasts.”
You won’t find a more explicit call to see Bitcoin as a technology for liberation than Wilson’s. You would imagine, then, that he would be disappointed to hear about FinCEN’s “guidance” suggesting that all Bitcoin entities that exchange Bitcoins for non-virtual currencies must register with the government. So much for starving the beast — a few more steps down that trail, and Bitcoin will be in the belly of the beast!
But Wilson’s faith in the free market and the Internet is so profound that he shrugs off any accommodation that Bitcoin might make with the government by expressing his faith that “when the currency becomes captive to regulatory interests, a competing currency and genesis code will take the lead.” Just as the Internet’s structure makes it impossible to stop the sharing of code or music or 3-D gun printing designs, so too will it enable the endless upwelling of alternative currencies.
But that view seems to miss something fundamental about what makes a currency work. Enough people have to buy into it, so to speak, that people and entities will accept it in exchange for goods and services, or convert it into other forms of legal tender, or employ it as an investment vehicle. It has to be useful, in other words, and true usefulness requires scale.
But scale inevitably attracts attention. Like it or not, the state will not sit idly by if vast sums of drug money start getting money laundered through Bitcoins, or if a significant enough stream of tax dollars starts getting diverted into the Bitcoin ether. Just try to avoid paying taxes on the proceeds of those 3-D-printed guns you are selling to all and sundry. The Eye of Sauron will come looking. In fact, it already has, as proven by FinCEN’s Monday release. Welcome to the real world, Bitcoin.

Wednesday, 20 March 2013

It is claimed that Abraham Lincoln issued Greenbacks which were United State Notes that largely financed the success of the American Civil War rather than relying on borrowing from banks, and similiar sources . RS

Large-sized Series of 1880 United States Notes; the $20 note displays Alexander Hamilton and a red scalloped seal, and the $10 Daniel Webster and a large red spiked seal

A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "greenbacks" in their heyday, a name inherited from the Demand Notes that they replaced in 1862. Often called Legal Tender Notes, they were called United States Notes by the First Legal Tender Act, which authorized them as a form of fiat currency. During the 1860s the so-called second obligation on the reverse of the notes stated:[1]This Note is Legal Tender for All Debts Public and Private Except Duties On Imports And Interest On The Public Debt; And Is Redeemable In Payment Of All Loans Made To The United States.
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
United States Notes that were issued in the large-size format, before 1929, differ dramatically in appearance when compared to modern American currency, but those issued in the small-size format, starting in 1929, are very similar to contemporary Federal Reserve Notes with the highly visible distinction of having red U.S. Treasury Seals and serial numbers in place of green ones.
Existing United States Notes remain valid currency in the United States. However, since no United States Notes have been issued since January 1971, they are vanishingly rare in circulation.

Comparison of a $5 Demand Note (upper image) and an 1862 issue $5 United States Note (lower image). Note the removal of the words "On Demand" and of the phrase "Receivable in Payment of All Public Dues". Also note the Treasury Seal added to the United States Note.

During 1861, the opening year of the American Civil War, the expenses incurred by the Union Government far outstripped its limited revenues from taxation, and borrowing was the main vehicle for financing the war. The Act of July 17, 1861[2] authorized Secretary of the TreasurySalmon P. Chase to raise money via the issuance of $50,000,000 in Treasury Notes payable on demand.[3] These Demand Notes were paid out to creditors directly and used to meet the payroll of soldiers in the field. While issued within the legal framework of Treasury Note Debt, the Demand Notes were intended to circulate as currency and were of the same size as and, in appearance, closely resembled banknotes.[4] In December 1861, economic conditions deteriorated and a suspension of specie payment led the government to cease redeeming the Demand Notes in coin.

The beginning of 1862 found the Union's expenses mounting, and the government was having trouble funding the escalating war. U.S. Demand Notes—which were used, among other things, to pay Union soldiers—were unredeemable, and the value of the notes began to deteriorate. On January 16, 1862, in a private meeting with President Lincoln, Edmund Dick Taylor advised him to issue greenbacks as legal tender.[5][6] Congressman and Buffalo banker Elbridge G. Spaulding prepared a bill, based on the Free Banking Law of New York, that eventually became the National Banking Act of 1863.[7] Recognizing, however, that his proposal would take many months to pass Congress, in early February Spaulding introduced another bill to permit the U.S. Treasury to issue $150 million in notes as legal tender.[8] This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. "The bill before us is a war measure, a measure of necessity, and not of choice," Spaulding argued before the House, adding, "These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government, and preserve our nationality." Spaulding justified the action as a "necessary means of carrying into execution the powers granted in the Constitution 'to raise and support armies,' and 'to provide and maintain a navy.'”[9] Despite strong opposition, President Lincoln signed the First Legal Tender Act,[10] enacted February 25, 1862, into law, authorizing the issuance of United States Notes as a legal tender—the paper currency soon to be known as "greenbacks".
Initially, the emission was limited to $150,000,000 total face value between the new Legal Tender Notes and the existing Demand Notes. The Act also called for the new notes to be used to replace the Demand Notes as soon as practical. The Demand Notes had been issued in denominations of $5, $10, and $20, and these were replaced by United States Notes nearly identical in appearance on the obverse. In addition, notes of entirely new design were introduced in denominations of $50, $100, $500 and $1000. The Demand Notes' printed promise of payment "On Demand" was removed and the statement "This Note is a Legal Tender" was added.

A political cartoon from the 1864 election depicting Secretary Fessenden of the Lincoln administration running "Chase's Mill" at left to flood the country with Greenbacks

Legal tender status guaranteed that creditors would have to accept the notes despite the fact that they were not backed by gold, bank deposits, or government reserves, and bore no interest. However, the First Legal Tender Act did not make the notes an unlimited legal tender as they could not be used by merchants to pay customs duties on imports and could not be used by the government to pay interest on its bonds. The Act did provide that the notes be receivable by the government for short term deposits at 5% interest, and for the purchase of 6% interest 20-year bonds at par. The rationale for these terms was that the Union government would preserve its credit-worthiness by supporting the value of its bonds by paying their interest in gold. Early in the war, customs duties were a large part of government tax revenue and by making these payable in gold, the government would generate the coin necessary to make the interest payments on the bonds. Lastly, by making the bonds available for purchase at par in United States Notes, the value of the latter would be supported as well.[3] The limitations to the legal tender status were quite controversial. Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means, which had authored an earlier version of the Legal Tender Act that would have made United States Notes a legal tender for all debts, denounced the exceptions, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold. This controversy would continue until the removal of the exceptions in 1933.
In the First Legal Tender Act, Congress limited the Treasury's emission of United States Notes to $150,000,000; however, by 1863, the Second Legal Tender Act,[11] enacted July 11, 1862, a Joint Resolution of Congress,[12] and the Third Legal Tender Act,[13] enacted March 3, 1863, had expanded the limit to $450,000,000, the option to exchange the notes for United States bonds at par had been revoked, and notes of $1 and $2 denominations had been introduced as the appearance of fiat currency had driven even silver coinage out of circulation. As a result of this inflation, the greenback went on to trade at a substantial discount from gold, which prompted Congress to pass the short-lived Anti-gold futures act of 1864, which was soon repealed after it seemed to accelerate the decline of the greenback.
The largest amount of greenbacks outstanding at any one time was calculated as $447,300,203.10.[14] The Union's reliance on expanding the circulation of greenbacks eventually ended with the emission of Interest Bearing and Compound Interest Treasury Notes, and the passage of the National Banking Act. However, the end of the war found the greenbacks trading for only roughly half of their nominal value in gold.[3]

At the end of the Civil War, some economists, such as Henry Charles Carey, argued for building on the precedent of non-debt-based fiat money and making the greenback system permanent.[15] However, Secretary of the Treasury McCulloch argued that the Legal Tender Acts had been war measures, and that the United States should soon reverse them and return to the gold standard. The House of Representatives voted overwhelmingly to endorse the Secretary's view.[16] With an eventual return to gold convertibility in mind, the Funding Act of April 12, 1866[17] was passed, authorizing McCulloch to retire $10 million of the Greenbacks within six months and up to $4 million per month thereafter. This he proceeded to do until only $356,000,000 were outstanding in February 1868. By this point, the wartime economic boom was over, the crop harvest was poor, and a panic in Great Britain caused a recession and a sharp drop in prices in the United States.[18] The contraction of the money supply was blamed for the deflationary effects, and led debtors to successfully agitate for a halt to the notes' retirement.[19]
In the early 1870s, Treasury Secretaries George S. Boutwell and William Adams Richardson maintained that, though Congress had mandated $356,000,000 as the minimum Greenback circulation, the old Civil War statutes still authorized a maximum of $400,000,000[20] - and thus they had at their discretion a "reserve" of $44,000,000. While the Senate Finance Committee under John Sherman disagreed, being of the opinion that the $356,000,000 was a maximum as well as a minimum, no legislation was passed to assert the Committee's opinion. Starting in 1872, Boutwell and Richardson used the "reserve" to counteract seasonal demands for currency, and eventually expanded the circulation of the Greenbacks to $382,000,000 in response to the Panic of 1873.[21]
In June 1874, Congress officially capped the Greenback circulation at $382,000,000, and in January 1875, passed the Specie Payment Resumption Act, which authorized a contraction in the circulation of Greenbacks towards a revised limit of $300,000,000, and required the government to redeem them for gold, on demand, after 1 January 1879. As a result, the currency strengthened and by April 1876, the notes were on par with silver coins which then began to re-emerge into circulation.[22] On May 31, 1878, the contraction in the circulation was halted at $346,681,016 - a level which would be maintained for almost 100 years afterwards.[23] While $346,681,016 was a significant figure at the time, it is now a very small fraction of the total currency in circulation in the United States. The year 1879 found Sherman, now Secretary of the Treasury, in possession of sufficient specie to redeem notes as requested, but as this brought the value of the greenbacks into parity with gold for the first time since the Specie Suspension of December 1861, the public voluntarily accepted the greenbacks as part of the circulating medium.[16]

While the United States Notes had been used as a form of debt issuance during the Civil War, afterwards they were used as a way of moderately influencing the money supply by the federal government - such as through the actions of Boutwell and Richardson. During the Panic of 1907, President Theodore Roosevelt attempted to increase liquidity in the markets by authorizing the Treasury to issue more Greenbacks, but the Aldrich-Vreeland Act provided for the needed flexibility in the National Bank Note supply instead. Eventually, the perceived need for an elastic currency was addressed with the Federal Reserve Notes authorized by the Federal Reserve Act, and pressure to alter the circulating quantity of United States Notes subsided.
Soon after private ownership of gold was banned in 1933, all of the remaining types of circulating currency, silver certificates, Federal Reserve Notes, and United States Notes, were redeemable by individuals only for silver. Eventually, even silver redemption stopped in 1965-68, during a time in which all U.S. currency (both coins and paper currency) was changed to fiat currency. At this point for the general public, there was little to distinguish United States Notes from Federal Reserve Notes. As a result, the public circulation of United States Notes, which was then mainly in the form of $5 bills, was replaced with $5 Federal Reserve Notes, and the stock of United States Notes was mostly converted into $100 bills, which spent most of their time in bank vaults. No more United States Notes were put into circulation after January 21, 1971.[24] In September 1994 the Riegle Improvement Act released the Treasury from its long-standing obligation to keep the notes in circulation and finally, in 1996, the Treasury announced that its stock of $100 United States Notes had been destroyed.[25]

The United States Note was a national currency whereas Federal Reserve Notes are issued by the quasi-federal Federal Reserve System.[26] Both have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for them came from different statutes.[24] United States Notes were created as fiat currency, in that the government has never categorically guaranteed to redeem them for precious metal - even though at times, such as after the specie resumption of 1879, federal officials were authorized to do so if requested. The difference between a United States Note and a Federal Reserve Note is that a United States Note represented a "bill of credit" and was inserted by the Treasury directly into circulation free of interest. Federal Reserve Notes are backed by debt purchased by the Federal Reserve, and thus generate seigniorage, or interest, for the Federal Reserve System, which serves as a lending parent to the Treasury and the public.
As the debt purchased by the Federal Reserve System to back its notes consists primarily of Treasury and Government-sponsored enterprise debt,[27] and because the seigniorage is largely remitted back to the Treasury as "interest on Federal Reserve Notes", the economics to the Treasury are comparable to issuing United States Notes. This stands in contrast to National Bank Notes which allowed the issuing banks to privately retain the seigniorage as profit.

The first small size $1 United States Note issued (Smithsonian Institution).

The first small size $2 United States Note issued (Smithsonian Institution).

The first small size $5 United States Note issued (Smithsonian Institution).

Like all U.S. currency, United States Notes were produced in a large sized format until 1929, at which point the notes' sizes were reduced to the small-size format of the present day.
The original large-sized Civil War issues were dated 1862 and 1863, and issued in denominations of $1, $2, $5, $10, $20, $50, $100, $500 and $1000.[28] The United States Notes were dramatically redesigned for the Series of 1869, the so-called Rainbow Notes. The notes were again redesigned in the Series of 1874, 1875 and 1878. The Series of 1878 included, for the first and last time, notes of $5,000 and $10,000 denominations. The final across-the-board redesign of the large-sized notes was the Series of 1880. Individual denominations were redesigned in 1901, 1907, 1917 and 1923.
On small-sized United States Notes, the U.S. Treasury Seal and the serial numbers are printed in red (contrasting with Federal Reserve Notes, where they usually appear in green). By the time the small-size format was adopted, the Federal Reserve System was already in place and there was limited need for United States Notes. They were mainly issued in $2 and $5 denominations in the Series years of 1928, 1953, and 1963. There was a limited issue of $1 notes in the Series of 1928, and an issue of $100 notes in the Series year of 1966, mainly to satisfy legacy legal requirements of maintaining the mandated quantity in circulation.
Section 5119(b)(2) of Title 31, United States Code, was amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (Public Law 103-325) to read as follows: "The Secretary shall not be required to reissue United States currency notes upon redemption." This does not change the legal tender status of United States Notes nor does it require a recall of those notes already in circulation. This provision means that United States Notes are to be cancelled and destroyed but not reissued. This will eventually result in a decrease in the amount of these notes outstanding.[29]

As of December 2012[update], the U.S. Treasury calculates that $239 million in United States notes are in circulation, and excludes this amount from the statutory debt limit of the United States. This amount excludes $25 million in United States Notes issued prior to July 1, 1929, determined pursuant to Act of June 30, 1961, 31 U.S.C. 5119, to have been destroyed or irretrievably lost.[30]

The concept of replacing precious metals with fiat paper as the medium of exchange was contentious and attracted attention.
The United States Congress had enacted the Legal Tender Acts during the U.S. Civil War when southern Democrats were absent from the Congress, and thus their Jacksonianhard money views were underrepresented. After the war, the Supreme Court ruled on the Legal Tender Cases to determine the constitutionality of the use of greenbacks. The 1870 case Hepburn v. Griswold found unconstitutional the use of greenbacks when applied to debts established prior to the First Legal Tender Act as the five Democrats on the Court, Nelson, Grier, Clifford, Field, and Chase, ruled against the Civil War legislation in a 5-3 decision. Secretary Chase had become Chief Justice of the United States and a Democrat, and spearheaded the decision invalidating his own actions during the war. However, Grier retired from the Court, and President Grant appointed two new Republicans, Strong and Bradley, who joined the three sitting Republicans, Swayne, Miller, and Davis, to reverse Hepburn, 5-4, in the 1871 cases Knox v. Lee and Parker v. Davis. In 1884, the Court, controlled 8-1 by Republicans, granted the federal government very broad power to issue Legal Tender paper through the case Juilliard v. Greenman, with only the lone remaining Democrat, Field, dissenting.[21]
The states in the far west stayed loyal to the Union, but also had hard money sympathies. During the specie suspension from 1862 to 1878 western states used the gold dollar as a unit of account whenever possible and accepted greenbacks at a discount wherever they could.[3] The preferred forms of paper money were gold certificates and National Gold Bank Notes, the latter having been created specifically to address the desire for hard money in California.
During the 1870s and 1880s, the Greenback Party existed for the primary purpose of advocating an increased circulation of United States Notes as a way of creating inflation according to the quantity theory of money. However, as the 1870s unfolded, the market price of silver fell with respect to gold, and inflationists found a new cause in the Free Silver movement. Opposition to the resumption of specie convertibility of the Greenbacks in 1879 was accordingly muted.

^While the three Legal Tender Acts had authorized $450,000,000 of notes, the Second Legal Tender Act, in taking the total from $150,000,000 to $300,000,000 had reserved $50,000,000 of the increase for the purpose of redeeming balances in a temporary deposit program. The Act of June 30, 1864, reiterated this limitation, and as the temporary loan program had ceased to exist, only $400,000,000 of the $450,000,000 ceiling were available.

^ abTimberlake, Richard H.(1993). Monetary Policy in the United States: An Intellectual and Institutional History, Chicago, IL: University of Chicago Press. ISBN 978-0-226-80384-5.

The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of fishing, commonly called the South Sea Company,[1] was a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of national debt. The company was also granted a monopoly to trade with South America, hence its name. At the time it was created, Britain was involved in the War of the Spanish Succession and Spain controlled South America. There was no realistic prospect that trade would take place and the company never realised any significant profit from its monopoly. Company stock rose greatly in value as it expanded its operations dealing in government debt, peaking in 1720 before collapsing to little above its original flotation price; this became known as the South Sea Bubble.
A considerable number of persons were ruined by the share collapse, and the national economy greatly reduced as a result. The founders of the scheme engaged in insider trading, using their advance knowledge of when national debt was to be consolidated to make large profits from purchasing debt in advance. Huge bribes were given to politicians to support the Acts of Parliament necessary for the scheme. Company money was used to deal in its own shares, and selected individuals purchasing shares were given loans backed by those same shares to spend on purchasing more shares. The expectation of vast wealth from trade with South America was used to encourage the public to purchase shares, despite the limited likelihood this would ever happen. The only significant trade which did take place was in slaves, but the company failed to manage this profitably.
A parliamentary enquiry was held after the crash to discover its causes. A number of politicians were disgraced and persons found to have profited unlawfully from the company had assets confiscated proportionately to their gains (most had already been rich men and remained comfortably rich). The company was restructured and continued to operate for more than a century after the Bubble. The headquarters were in Threadneedle Street at the centre of the financial district in London, in which street today can be found the Bank of England. At the time of these events this also was a private company dealing in national debt, and the crash of its rival consolidated its position as banker to the British government.[2]
The Bubble Act, which forbade the creation of joint-stock companies without royal charter, was promoted by the South Sea company itself before its collapse. This was an effort to prevent the increasing competition for investors, which it saw from companies springing up around it.

In August 1710 Robert Harley was appointed Chancellor of the Exchequer. The government at this time had become reliant upon the Bank of England, a privately owned company which had obtained a monopoly to be the sole bank in England in return for arranging and managing loans to the government, but the government had become dissatisfied with the service it was receiving. Harley, therefore, was actively seeking new ways to improve the national finances. A new Parliament met in November 1710 with a resolve to attend to national finances which had suffered significantly from the costs of war with France. Harley came prepared, with detailed accounts as to the exact situation of national debt, which was customarily a piecemeal affair with different government departments arranging their own loans at need. He released the information steadily, continually adding new reports of debts incurred and scandalous expenditure until in January 1711 the House of Commons agreed to appoint a committee to investigate the entire debt. Members of the committee included Harley himself and the two Auditors of the Imprests whose task was to investigate government spending, Edward Harley brother of Robert and Paul Foley his brother in law. Also included were William LowndesSecretary of the Treasury who had had significant responsibility for re-minting the entire debased British coinage in 1696, and John Aislabie who represented the October Club, a group of around 200 MPs who had agreed to vote together.[3]
Harley's first concern was to find £300,000 for the next quarter's pay for the British army operating in Europe under Marlborough. This was provided by a private consortium of Edward Gibbon, George Caswall and Hoare's bank. The Bank of England had been operating a state lottery on behalf of the government which had not been particularly successful in 1710 and another had already begun in 1711. This too was performing poorly, so Harley granted authority for selling tickets to John Blunt a director of the Hollow Sword Blade Company, which despite its name was an unofficial bank. Commencing 3 March 1711 tickets had completely sold out by the 7th. This was the first truly successful English state lottery.[4]
The success was shortly followed by another, larger, lottery 'The Two Million Adventure' or 'The Classis', with tickets costing £100, a maximum prize of £20,000 and every ticket winning a prize of at least £10. Although prizes were advertised by the total amount, they were paid in the form of a fixed sum annuity over a period of years, meaning the government effectively held the prize money as a loan until it was paid out to the winners. Marketing was handled by members of the Sword Blade syndicate, Gibbon distributing £200,000 of tickets and earning £4,500 commission, and Blunt distributing £993,000. Charles Blunt (a relative) was made Paymaster of the lottery with 'expenses' of £5,000.

The national debt investigation had concluded that a total of £9,000,000 was owed without any allocated income to pay it off. Edward Harley and John Blunt together had devised a scheme to consolidate this debt in a similar manner to that previously performed by the Bank of England, although the Bank still held the monopoly on operating as a bank. All holders of the identified debt would be required to surrender this to a new company, the South Sea Company, which in return would issue shares to the same amount. The government would pay the company £568,279 and 10s (6% interest plus expenses) annually, which would be distributed as a dividend to shareholders. The company was also given a monopoly to trade with South America, a potentially lucrative enterprise but one which was controlled by Spain, with whom Britain was at war.[5]
At that time, when continental America was being explored and colonized, Europeans applied the term "South Seas" only to South America and surrounding waters, not to any other ocean. The concession both held out the potential for future profits and encouraged a desire for an end to the war, necessary if any profits were to be made. The original suggestion for the South Sea scheme has sometimes been credited to Daniel Defoe, but it is more likely the idea originated with William Paterson, one of the founders of the Bank of England and the Darien Scheme, the disastrous failure of which contributed to Scotland agreeing to Unite with England.[6]
Harley was rewarded for the scheme by being created Earl of Oxford on 23 May 1711 and was promoted to Lord High Treasurer. With a more secure position, he began secret peace negotiations with France. Commercially, since the lotteries were discredited, some of the debt intended to be consolidated under the scheme was available in the open market before the scheme was announced, at a discounted rate of £55/£100 nominal value. This allowed anyone with advance knowledge to buy debt cheap and sell at an immediate profit, and made it possible for Harley to bring further financial supporters into the scheme, such as James Bateman and Theodore Janssen.[7]
Daniel Defoe commented:

"Unless the Spaniards are to be divested of common sense, infatuate, and given up, abandoning their own commerce, throwing away the only valuable stake they have left in the world, and in short, bent on their own ruin, we cannot suggest that they will ever, on any consideration, or for any equivalent, part with so valuable, indeed so inestimable a jewel, as the exclusive trade to their own plantations."

The originators of the scheme knew that there was no money to invest in a trading venture, and no realistic expectation there would ever be a trade to exploit, but the potential for great wealth was widely publicised at every opportunity, so as to encourage interest in the scheme. The objective for the founders was to create a company which they could use to become wealthy, and which offered future scope for further government deals.[8]

The "night singer of shares" sold stock on the streets during the South Sea Bubble. Amsterdam, 1720.

The Charter for the company was drawn up by Blunt, based upon that of the Bank of England. Blunt was paid £3,846 for his services in setting up the company. Directors would be elected every three years while shareholders would meet twice a year. The company employed a Cashier, Secretary and Accountant. The Governor was intended to be an honorary position and was later customarily held by the ruling monarch. The charter allowed the full court of directors to nominate a smaller committee to act on any matter on its behalf. Anyone who was a director of the Bank of England or East India Company was disbarred from being a director of the South Sea company. Any ship owned by the company of more than 500 tons was to have a Church of England clergyman on board.
The exchange of government debt for stock was to occur in five separate lots. The first two of these, totaling £2.75 million from about 200 large investors, had already been arranged before the company's charter was issued on 10 September 1711. The government itself exchanged £0.75 million of its own debt held by different departments (at this time, individual office holders held responsibility for money in their charge, and were at liberty to invest it to their own advantage before it was required). Harley exchanged £8,000 of debt and was appointed Governor of the new company. Blunt, Caswall and Sawbridge together provided £65,000 Janssen £25,000 of his own plus £250,000 from a foreign consortium, Decker £49,000, Sir Ambrose Crawley £36,791. The company had a Sub-Governor, Bateman, Deputy Governor, Ongley and 30 ordinary directors. In total, nine of the directors were politicians, five were members of the Sword Blade consortium, and seven more were financial magnates who had been attracted to the scheme.[9]
The company created a coat of arms with the motto 'A Gadibus usque ad Auroram' (from Cadiz to the dawn) and rented a large house in the City as its headquarters. Seven sub-committees were created to handle its everyday business, the most important being the 'Committee for the affairs of the company'. The Sword Blade company was retained as their banker and on the strength of its new government connections issued notes in its own right, notwithstanding the Bank of England monopoly. The task of the Company Secretary was to oversee trading activities, the Accountant, Grigsby, was responsible for registering and issuing stock, and the Cashier, Robert Knight, acted as Blunt's personal assistant at a salary of £200 per year.[10]

The War of the Spanish Succession did not end until March 1713, when the Treaty of Utrecht granted Britain an Asiento lasting 30 years to supply the Spanish colonies with 4,800 slaves per year. Britain was permitted to open offices in Buenos Aires, Caracas, Cartagena, Havana, Panama, Portobello and Vera Cruz to arrange the slave trade. One ship of no more than 500 tons could be sent to one of these places each year (the Navío de Permiso) with general trade goods. One quarter of the profits were to be reserved for the King of Spain. There was provision for two extra sailings at the start of the contract. The Asiento was granted in the name of Queen Anne and then contracted to the company.[11]
By July the company had arranged contracts with the Royal African Company to supply the necessary African slaves to Jamaica. £10 was paid for a slave aged over 16, £8 for one over 10. Two thirds were to be male, and 90% adult. The company trans-shipped 1,230 slaves from Jamaica to America in the first year, plus any which might have been added (against standing instructions) by the ship's captains on their own behalf. On arrival of the first cargoes, the local authorities refused to accept the Asiento, which had still not been officially confirmed there by the Spanish authorities. The slaves were eventually sold at a loss in the West Indies.[12]
In 1714 the government announced that a quarter of profits would be reserved for the queen and a further 7.5% for a financial advisor, Manasseh Gilligan. Some members of company board refused to accept the contract on these terms, and the government was obliged to reverse its decision.[13]
Despite these setbacks, the company persisted, having raised £200,000 to finance the operations. In 1714 2,680 slaves were carried, for 1716–1718, 13,000 more, but the trade continued to be unprofitable. An import duty of 33 pieces of eight was charged on each slave (although for purposes of payment slaves were not counted individually, but might only be counted as part slaves according to quality). One of the extra trade ships was sent to Cartagena in 1714 carrying woolen goods, despite warnings there was no market for them there, and they remained unsold for two years.[14]

The company was heavily dependent on the goodwill of government and so, when government changed, so too did the company board. In 1714 one of the directors who had been sponsored by Harley, Arthur Moore, had attempted to send 60 tons of private goods on board the company ship. He was dismissed as a director, but the result was the beginning of Harley's fall from favour with the company. On 27 July 1714, Harley was replaced as Lord High treasurer as a result of disagreement which had broken out within the Tory faction in parliament. Queen Anne died 1 August 1714 and at the election of directors in 1715 the Prince of Wales (future King George II) was elected as Governor of the Company. The new King, George I and the Prince of Wales both had significant holdings in the company as did some prominent Whig politicians, including James Cragg, the Earl of Halifax and Sir Joseph Jekyll. James Cragg, as Postmaster General, was responsible for intercepting mail on behalf of the government to obtain political and financial information. All Tory politicians were removed from the board and replaced with businessmen. Whigs, Horatio Townshend, brother in law of Robert Walpole and the Duke of Argyll were elected directors.
The new government led to a revival of the company's share value, which had fallen below its issue price. The previous government had failed to make the interest payments to the company for the last two years, owing more than £1 million. The new administration insisted the debt be written off, but allowed the company to issue new shares to stockholders to the value of the missed payments. At around £10 million, this now represented half the share capital issued in the entire country. In 1714 the company had 2-3,000 shareholders, more than either of its rivals.[15]
By the time of the next director's elections in 1718 politics had changed again, with a schism within the Whigs between Walpole's faction supporting the Prince of Wales and James Stanhope's supporting the King. Argyll and Townshend were dismissed as directors, as were surviving Tories Sir Richard Hoare and George Pitt, and King George I became Governor. Four members of parliament remained directors, as did six people holding government financial offices. The Sword Blade Company remained bankers to the South Sea, and indeed had flourished despite the company's doubtful legal position. Blunt remained a South Sea director, as did Sawbridge and they had been joined by Gibbon and Child. Caswall had retired as a South Sea director to concentrate on the Sword Blade business. In November 1718 Sub-Governor Bateman and Deputy Governor Shepheard both died. Leaving aside the honorary position of Governor, this left the company suddenly without its two most senior and experienced directors. They were replaced by Sir John Fellowes as Sub-Governor and Charles Joye as Deputy.[16]

In 1718 war broke out with Spain once again. The company's assets in South America were seized, which the company claimed cost it £300,000. Any prospect of profit from trade, for which the company had purchased ships and had been planning its next ventures, disappeared.[17]

Events in France now came to influence the future of the South Sea company. A Scottish economist and financier, John Law, exiled after killing a man in a duel, had travelled around Europe before settling in France. There he founded a bank, which in December 1718 became the Banque Royale, national bank of France, while Law himself was granted sweeping powers to control the economy of France, which operated largely by Royal decree. Law's remarkable success was known throughout Europe in financial circles and now came to inspire Blunt and his associates to make greater efforts to grow their own concerns.[18]
In February 1719 Craggs explained to the House of Commons a new scheme for improving the national debt by converting the annuities issued after the 1710 lottery into South Sea stock. By Act of Parliament, the company was granted the right to issue £1,150 of new stock for every £100 of annuity which was surrendered. The government would pay 5% on the stock created, which would halve their annual bill. The conversion was voluntary, amounting to £2.5 million new stock if all converted. The company was to make an additional new loan to the government pro-rata up to £750,000, again at 5%.[19]
The South Sea company chose to present the offer to the public in July 1719. In March there was an abortive attempt to restore the Old Pretender, James Edward Stuart to the throne of Britain, with a small landing of troops in Scotland. They were defeated at the Battle of Glen Shiel on 10 June. The Sword Blade company arranged to spread a rumour that the Pretender himself had been captured, and the general euphoria encouraged the South Sea share price to rise from £100 where it had been in the spring to £114. Annuitants were still paid out at the same money value of shares, the company keeping the profit from the rise in value before issuing. Approximately 2/3 of the available annuities were exchanged.

William Hogarth, Emblematical Print on the South Sea Scheme (1721). In the bottom left corner are Protestant, Catholic, and Jewish figures gambling, while in the middle there is a huge machine, like a merry-go-round, which people are boarding. At the top is a goat, written below which is "Who'l Ride". The people are scattered around the picture with a sense of disorder, while the progress of the well dressed people towards the ride in the middle represent the foolishness of the crowd in buying stock in The South Sea Company, which spent more time issuing stock than anything else.

The 1719 scheme was a distinct success from the government's perspective and they sought to repeat it. Negotiations took place between Aislabie and Craggs for the government and Blunt, Cashier Knight and his assistant and Caswell. Janssen, the Sub Governor and Deputy Governor were also consulted but negotiations remained secret from most of the company. News from France was of fortunes being made investing in Law's bank whose shares had risen sharply. Money was moving around Europe, and other flotations threatened to soak up available capital (two insurance schemes in December 1719 each sought to raise £3 million).[20]
Plans were made for a new scheme to take over most of the unconsolidated national debt of Britain (£30,981,712) in exchange for company shares. Annuities were valued as a lump sum necessary to produce the annual income over the original term at an assumed interest of 5%, which favoured those with shorter terms still to run. The government agreed to pay the same amount to the company for all the fixed term repayable debt as it had been paying before, but after seven years the 5% interest rate would fall to 4% on both the new annuity debt and also that taken over previously. After the first year, the company was to give the government £3 million in four quarterly installments. New stock would be created at a face value equal to the debt, but the share price was still rising and sales of the spare stock over and above that with a sale value equal to the debt would be used to raise the government fee plus a profit for the company. The more the price rose in advance of conversion, the more the company would make. Before the scheme, payments were costing the government £1.5 million per year.[21]
In summary, the total government debt in 1719 was £50 million:

£15m consisted of irredeemable annuities, long fixed-term annuities of 72–87 years and short annuities of 22 years remaining maturity

The purpose of this conversion was similar to the old one: Debt holders and annuitants might receive less return in total but a difficult-to-sell investment was transformed into shares which could be readily traded. Shares backed by national debt were considered a safe investment and a convenient method to hold and move money, far easier and safer than metal coins. The only alternative safe security, land, was much harder to sell and it was legally much more complex to transfer ownership.
The government received a cash payment and lower overall interest on the debt. Importantly, it also gained security over when the debt had to be repaid, which was not before seven years but then at its discretion. This avoided the risk that debt might become repayable at some future point just when the government needed to borrow more, and could be forced into paying higher interest rates. The payment to the government was to be used to buy in any debt not subscribed to the scheme, which although it helped the government also helped the company by removing possibly competing securities from the market, including large holdings by the Bank of England.[22]
Company stock was now trading at £123, so the issue amounted to injecting £5 million of new money into a booming economy just as interest rates were falling. Gross Domestic Product (GDP) for Britain at this point was estimated as £64.4 million.[1]

On 21 January the plan was presented to the board of the South Sea company, and on 22 January Chancellor of the ExchequerJohn Aislabie presented it to Parliament. The House was stunned into silence, but on recovering proposed the Bank of England should be invited to make a better offer. In response, the South Sea increased its cash payment to £3.5 million, while the Bank proposed to undertake the conversion with a payment of £5.5 million and a fixed conversion price of £170 for £100 face value Bank stock. On 1 February, the company negotiators led by Blunt raised their offer to £4 million plus a proportion of £3.5 million depending on how much of the debt was converted. They also agreed to the interest reduction happening after four years instead of seven, and to sell on behalf of the government £1 million of Exchequer bills (formerly handled by the Bank). The House accepted the South Sea offer. Bank stock fell sharply.[23]
Perhaps the first sign of difficulty came as the South Sea announced that its Christmas 1719 dividend would be deferred for 12 months. The company now embarked on a show of gratitude to its friends. Select individuals were sold a parcel of company stock at the current price. The transactions were recorded by Knight in the names of intermediaries but no payments were received and no stock issued - indeed the company had none to issue until the conversion of debt began. The individual received an option to sell his stock back to the company at any future date at whatever market price might then apply. Shares went to the two Craggs, lords Gower and Lansdowne and four other members of Parliament. Sunderland would gain £500 for every pound that stock rose, George I's mistress, their children and Countess Platen £120 per pound rise, Aislabie £200 per pound, Stanhope £600 per pound. Others invested money, including the Treasurer to the Navy, Hampden, who invested £25,000 of government money on his own behalf.[24]
The proposal was accepted in a slightly altered form in April 1720. Crucial in this conversion was the proportion of holders of irredeemable annuities that could be tempted to convert their securities at a high price for the new shares. (Holders of redeemable debt had effectively no other choice but to subscribe.) The South Sea Company could set the conversion price but could not diverge much from the market price of its shares. The company ultimately acquired 85% of the redeemables and 80% of the irredeemables.

The company then set to talking up its stock with "the most extravagant rumours" of the value of its potential trade in the New World; this was followed by a wave of "speculating frenzy". The share price had risen from the time the scheme was proposed: from £128 in January 1720, to £175 in February, £330 in March and, following the scheme's acceptance, to £550 at the end of May.
What may have supported the company's high multiples (its P/E ratio) was a fund of credit (known to the market) of £70 million available for commercial expansion which had been made available through substantial support, apparently, by Parliament and the King.
Shares in the company were "sold" to politicians at the current market price; however, rather than paying for the shares, these recipients simply held on to what shares they had been offered, with the option of selling them back to the company when and as they chose, receiving as "profit" the increase in market price. This method, while winning over the heads of government, the King's mistress, etc., also had the advantage of binding their interests to the interests of the Company: in order to secure their own profits, they had to help drive up the stock. Meanwhile, by publicizing the names of their elite stockholders, the Company managed to clothe itself in an aura of legitimacy, which attracted and kept other buyers.

The South Sea company was by no means the only company seeking to raise money from investors in 1720. A large number of other joint-stock companies had been created making extravagant claims (sometimes fraudulent) about foreign or other ventures or bizarre schemes. Others represented potentially sound, although novel, schemes, such as for founding insurance companies. These were nicknamed "Bubbles". Some of the companies had no legal basis, while others, such as the Hollow Sword Blade company acting as the South Sea's banker, used existing chartered companies for purposes entirely different to their creation. The York Buildings Company was set up to provide water to London, but was purchased by Case Billingsley who used it to purchase confiscated Jacobite estates in Scotland, which then formed the assets of an insurance company.[25]
On 22 February 1720 John Hungerford raised the question of bubble companies in the House of Commons and persuaded the House to set up a committee, which he chaired, to investigate. He identified a number of companies which between them sought to raise £40 million in capital. The committee investigated the companies, establishing a principle that companies should not be operating outside the aims specified in their charters. A potential embarrassment for the South Sea was avoided when the question of the Hollow Sword Blade Company arose. Difficulty was avoided by flooding the committee with MPs who were supporters of the South Sea, and voting down the proposal to investigate the Hollow Sword by 75 to 25. (At this time, committees of the House were either 'Open' or 'secret'. A secret committee was one with a fixed set of members who could vote on its proceedings. By contrast, any MP could join in with an 'open' committee and vote on its proceedings.) Stanhope, who was a member of the committee, received £50,000 of the 'resaleable' South Sea stock from Sawbridge, a director of the Hollow Sword, at about this time. Hungerford had previously been expelled from the Commons for accepting a bribe.[26]
Amongst the bubble companies investigated were two supported by Lords Onslow and Chetwynd respectively, for insuring shipping. These were criticised heavily, and the questionable dealings of the Attorney General and Solicitor General in trying to get charters for the companies led to both being replaced. However, the schemes had the support of Walpole and Craggs, so that the larger part of the Bubble act (which finally resulted in June 1720 from the committee's investigations) was devoted to creating charters for the Royal Exchange Assurance Corporation and the London Assurance Corporation. The companies were required to pay £300,000 for the privilege. The Act required that a joint stock company could only be incorporated by Act of Parliament or Royal charter. The prohibition on unauthorised joint stock ventures was not repealed until 1825.[27]
The passing of the Act added a boost to the South Sea Company, its shares leaping to £890 in early June. This peak encouraged people to start to sell; to counterbalance this the company's directors ordered their agents to buy, which succeeded in propping the price up at around £750.

The price of the stock went up over the course of a single year from about one hundred pounds a share to almost one thousand pounds per share. Its success caused a country-wide frenzy as all types of people—from peasants to lords—developed a feverish interest in investing; in South Seas primarily, but in stocks generally. Among the many companies to go public in 1720 is — famously — one that advertised itself as "a company for carrying out an undertaking of great advantage, but nobody to know what it is".[28]
The price finally reached £1,000 in early August and the level of selling was such that the price started to fall, dropping back to one hundred pounds per share before the year was out, triggering bankruptcies amongst those who had bought on credit, and increasing selling, even short selling — selling borrowed shares in the hope of buying them back at a profit if the price falls.
Also, in August 1720 the first of the installment payments of the first and second money subscriptions on new issues of South Sea stock were due. Earlier in the year John Blunt had come up with an idea to prop up the share price — the company would lend people money to buy its shares. As a result, many shareholders could not pay for their shares other than by selling them.
Furthermore, the scramble for liquidity appeared internationally as "bubbles" were also ending in Amsterdam and Paris. The collapse coincided with the fall of the Mississippi Scheme of John Law in France. As a result, the price of South Sea shares began to decline.
By the end of September the stock had fallen to £150. The company failures now extended to banks and goldsmiths as they could not collect loans made on the stock, and thousands of individuals were ruined, including many members of the aristocracy. With investors outraged, Parliament was recalled in December and an investigation began. Reporting in 1721, it revealed widespread fraud amongst the company directors and corruption in the Cabinet. Among those implicated were John Aislabie (the Chancellor of the Exchequer), James Craggs the Elder (the Postmaster General), James Craggs the Younger (the Southern Secretary), and even Lord Stanhope and Lord Sunderland (the heads of the Ministry). Craggs the Elder and Craggs the Younger both died in disgrace; the remainder were impeached for their corruption. Aislabie was imprisoned.
The newly appointed First Lord of the TreasuryRobert Walpole was forced to introduce a series of measures to restore public confidence. Under the guidance of Walpole, Parliament attempted to deal with the financial crisis. The estates of the directors of the company were confiscated and used to relieve the suffering of the victims, and the stock of the South Sea Company was divided between the Bank of England and East India Company. A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames.[29] The crisis had significantly damaged the credibility of King George I and of the Whig Party.

Joseph Spence wrote that Lord Radnor reported to him "When Sir Isaac Newton was asked about the continuance of the rising of South Sea stock… He answered 'that he could not calculate the madness of people'."[30] He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men".[31] Newton's niece Catherine Conduitt reported that he "lost twenty thousand pounds. Of this, however, he never much liked to hear…"[32] This was a fortune at the time (equivalent to about £2.4 million in present day terms[33]), but it is not clear whether it was a monetary loss or an opportunity cost loss.

The South Seas Company's charter (of 1711) provided it with exclusive access to all of Middle and South America. However, the areas in question were Spanish colonies, and Great Britain was still at war with Spain. Even once a peace treaty had been signed, the South Sea Company was allowed to send only one ship per year to Spain’s American colonies (not one ship per colony; exactly one ship), carrying a cargo of not more than 500 tons. Additionally, it had the right to transport slaves, although steep import duties made the slave trade entirely unprofitable. Nevertheless, relations between the two countries were not good, and the company's trade suffered in two wars between Great Britain and Spain.

The company did not undertake a trading voyage to South America until 1717 and made little actual profit. Furthermore, when ties between Spain and Britain deteriorated in 1718 the short-term prospects of the company were very poor. Nonetheless, the company continued to argue that its longer-term future would be extremely profitable.

The most commercially significant aspect of the company's monopoly trading rights to the Spanish empire was the 1713 Treaty of Utrecht's slave-trading 'Asiento', which granted the exclusive right to sell slaves in all of the American colonies. The Asiento set a quota of selling 4800 people into slavery per year. Despite problems with speculation, the South Sea Company was relatively successful at slave trading and meeting its quota (it was unusual for other, similarly chartered companies to fulfill their quotas). According to records compiled by David Eltis and others, during the course of 96 voyages in twenty-five years, the South Sea Company purchased 34,000 slaves of whom 30,000 survived the voyages across the Atlantic.[34] In other words, approximately 11% of humans transported as slaves died in transport. This was a relatively low mortality rate on the Middle Crossing.[35] The company persisted with the slave trade through two wars with Spain and the calamitous 1720 commercial bubble. The company's trade in human slavery peaked during the 1725 trading year, five years after the bubble burst.[36]

The Greenland Company had been established by Act of Parliament in 1693 with the aim of catching whales in the Arctic. The products of their "whale-fishery" were to be free of Customs and other duties. Partly due to maritime disruption caused by wars with France, the Greenland Company failed financially within a few years. In 1722 Henry Elking published a proposal, directed at the governors of the South Sea Company, that they should resume the "Greenland Trade" and send ships to catch whales in the Arctic. He made very detailed suggestions about how the ships should be crewed and equipped.[37]
The British Parliament confirmed that a British Arctic "whale-fishery" would continue to benefit by freedom from Customs duties and in 1724 the South Sea Company decided to commence whaling. They had 12 whale-ships built on the River Thames and these went to the Greenland seas in 1725. Further ships were built in later years, but the venture was not successful. At this time there were hardly any experienced whalemen remaining in Britain and the Company had to engage Dutch and Danish whalemen for the key posts aboard their ships, e.g. all commanding officers and harpooners were hired from the North Frisian island of Föhr.[38] Other costs were badly controlled and the catches remained disappointingly few, even though the Company was sending up to 25 ships to Davis Strait and the Greenland seas in some years. By 1732 the Company had accumulated a net loss of £177,782 from their 8 years of Arctic whaling.[39]
The South Sea Company directors appealed to the British government for further support. Parliament had passed an Act in 1732 that extended the duty-free concessions for a further 9 years. In 1733 an Act was passed that also granted a government subsidy to British Arctic whalers, the first in a long series of such Acts that continued and modified the whaling subsidies throughout the eighteenth century. This, and the subsequent Acts, required the whalers to meet conditions regarding the crewing and equipping of the whale-ships that closely resembled the conditions suggested by Elking in 1722.[40] In spite of the extended duty-free concessions, and the prospect of real subsidies as well, the Court and Directors of the South Sea Company decided that they could not expect to make profits from Arctic whaling. They sent out no more whale-ships after the loss-making 1732 season.

The company continued its trade (when not interrupted by war) until the end of the Seven Years' War (1756–1763). However, its main function was always managing government debt, rather than trading with the Spanish colonies. The South Sea Company continued its management of the part of the National Debt until it was abolished in the 1850s.

Trafford v Boehm (3 Atk. 440) Lord Hardwicke, where a trustee laid out trust money in the South Sea annuities, which afterwards sunk in their value; it was considered as a departure from the trust, and the trustee ordered personally to make good the deficiency to the trust-estate.

Adie v Fennilitteau (1 Cox, 24) by the Lords Commissioners Lord Loughborough, Ashhurst, and Hotham, in April 1783, a trustee laid out trust money in South Sea annuities; they afterwards fell in their price, and though it was in the same fund in which the greatest part of the testator's personal estate was at his death invested, their Lordships held it to be an improper investment; and that the trustee should abide the loss.

^Computed by share of GDP as an indicator of a society wide economic movement (ie: an aggregate economic phenomena) using Lawrence H. Officer and Samuel H. Williamson, "Six Ways to Compute the Relative Value of a U.K. Dollar Amount, 1270 to present," MeasuringWorth, March 2011.

About Me

Robert Searle was educated in Windsor at the Royal Free, the Tutorials, and East Berkshire College. He is the originator of two major "work in progress" Paradigms known as Transfinancial Economics (TFE), and Multi-Dimensional Science (MDS).The former believes that new unearned money could be electronically created without serious inflation notably for key environmental, and
socially ethical projects. Multi-Dimensional Science though presents an unique "scientific" Methodology by which claimed psychic, and spiritual "phenomena"could possibly be "proved".
Apart from the above, Searle has proposed the development of the Universal Debating Project, an interactive "encyclopedia" of virtually "all" pro, and con arguments for practically any subject in the world.He is the creator too of a tribute blog on the musician, and broadcaster David Munrow (1942-1976), and a pioneering one on Contemporary Early Music.Furthermore, he has a very large audio-visual collection of Medieval, and Renaissance Music (manually created as Searle8), and has an "unusual" musical project involving improvisation which could also open up a "new" approach to music.